The $13.5 billion Pentagon Federal Credit Union has announced that it is the only credit union in the country, at least for now, to directly issue American Express cards.
In a Nov. 16 announcement, the credit union said it would be the only credit union to issue the card “for a limited time,” and Pentagon declined to comment further on how long that might be. Other credit unions around the country that issue American Express cards do so through banks with which they have agent issuing agreements.
The deal with Pentagon represents something of a shift for American Express. Before late 2007, the card brand had been effectively restricted to issuing its own cards because rules and agreements among Visa, MasterCard and financial institutions had blocked any from issuing American Express cards. Then, when American Express settled a suit to be able to partner with financial institution issuers, the card brand made it clear that it was primarily interested in working with large banks. But now American Express has decided to open up issuing to a broader field of financial institutions, both banks and credit unions.
“We continue to have discussions with other potential partners in the U.S. and plan to add more partnerships on a selective basis,” wrote an American Express spokesman in an e-mail response. “Our goal is to work with a range of issuers in the U.S., including small, medium and large players, as long as they are a strategic fit for our brand and can bring in high-spending customers to our merchants.”
“The PenFed brand stands for trust, integrity and security, and we have a history of providing rich product offerings to our members,” said Nicole Butler, Pentagon FCU's vice president of card services and business development. “The PenFed Premium Travel Rewards American Express Card is no exception. With this product, we're upholding our brand promise and presenting the discerning card member with a superior travel rewards product-no gimmicks, no black-out dates and no single-airline limitations.”
Butler said the credit union decided it had an opportunity with American Express after seeing some of the results from a review of its members card use. “When we saw how many of our members were using their cards for consistent travel, which has been a strength of American Express, we decided to see what we could do,” Butler said.
She said that size had not been the biggest factor behind the decision to start issuing American Express cards but instead the propensity of its members to use the cards. No matter how many cards a credit union issues, she noted, what matters is how many members pull out the cards and use them.
According to the NCUA, the Pentagon Federal issued about 388,000 credit cards as of the end of June, which gives is a penetration rate of about 42% for its credit card, very good for a credit union.
Butler said that the credit union would control the terms, parameters and underwriting of the cards and did not plan to restrict them to only members with a certain credit score. “If a member qualifies for one of our cards, we will offer them this American Express card as an option,” Butler said.
She also said Pentagon expected to see some degree of cannibalization in its card portfolio as some of its existing Visa cardholders moved over to the new card. But she also noted that Pentagon expected some of its members to carry both card brands and use them for different things.
“Visa has the whole cash back for food and grocery offer going,” Butler said. “And American Express is strong in the travel and business sector, so we expect there will be some of our members who will keep both cards and use them in different places.”
–[email protected]